Drivers of income inequality in Africa: Does institutional quality matter?

Abstract

This paper examines the role institutional quality plays among the empirical drivers of income inequality in Africa. Using a dynamic two‐step difference GMM with robust standard errors over the period 1990–2017, we find no statistically significant effect of institutions in general, on income inequality. However, we find that institutional quality indicators such as control of corruption and the strict enforcement of the rule of law significantly reduce income inequality. We also find no statistically significant effects of the other institutional quality indicators such as government effectiveness, voice and accountability, regulatory quality, and political stability on income inequality in our sample. We suggest that more premium be placed on corruption control and the stringent adherence to the rule of law in ensuring equitable distribution of income in Africa. Furthermore, we re‐echo suggestions that promote institutional development in Africa as institutions in general remain very weak.